The fall in consumer spending in September is not good news for the long-suffering high street retailer.
The news that consumer spending fell in September, with sales in clothing and footwear suffering a 7.8% drop compared with August and by 4.1% compared with September 2013, is not good news for the long-suffering high street retailer.
Many shops have been left with an overabundance of stock which is now being discounted heavily – even before the sale season.
Maybe October will see a rebound but it seems that shoppers are feeling the pinch even before the costs of the ‘festive’ season kick in.
Retailers hope for a boost in consumer spending over the crucial Christmas period, the busiest of the year, bringing a much needed increase in sales and profits.
However, retail sales are slowing down. House prices have flatlined, many households are seeing little increase in their incomes and consumer confidence is cooling.
The customer is becoming ever more cost conscious and will always be looking for that bargain. Sales aren’t just for Christmas any more – there are bargains to be had all year round, with offers of as much as 50% off even in non-Sale periods.
With retailers starting the season at such discounted levels, how much deeper can they go without it affecting their profits, if they have not already, or even their existence.
Although price reductions can increase footfall both in store and online, boosting sales, retailers need to be wary.
By discounting too heavily their profit margins and cashflow will take a severe hit.
Without intervention, this can lead to a lack of cashflow triggering further discounts until the situation becomes unsustainable.
There is no simple answer to breaking the vicious circle. A combination of cutting costs and investing selectively is likely to deliver the best results: investing in the customer experience and in staff to help differentiate the business; and reducing costs by making better use of space, perhaps by partnering with others for a store-in-store format or reviewing sites and then identifying and reducing any ‘tail’ of underperforming stores.
Whatever the decision, if retailers are to survive they may need to think differently about their strategies and their investment priorities.
This Christmas may be make-or-break for businesses in general, and an especially bleak mid-winter for retailers.
- Dan Coen, director, Zolfo Cooper